Lesson video

Hello and welcome to today's citizenship lesson.

I'm Mrs. Barry and I'll be doing your lesson with you today.

We're looking at a series of lessons about how we can manage money well.

And today's lesson is all about what are the implications of borrowing money? So I hope that you set yourself up for a quiet session, that you've turned off all your apps, your notifications, they don't distract you while you're learning and you're in a quiet place.

I hope you've got with you today everything you need.

So hopefully you've got your brain with you and a pen or a pencil, something to write with and something to write on, so you can make some notes throughout our lesson.

When you're ready to begin, we can make a start.

We're going to be looking at this question through a variety of ways about the implications of borrowing money.

We're going to start by looking at what is borrowing and we're going to have a think about different types of borrowing that you can do if you were to need to borrow money.

And we're going to also think about borrowing smartly.

So, yes, there are lots of different methods of borrowing money, but not all of them are very smart.

Some of them could cost you a lot and some cost you less.

So we're going to think about how we can make those judgements about borrowing money and the implications it could have on us in the future.

We'll do some activities to check your understanding and hopefully by the end, we'll have a good understanding of the implications of borrowing money.

So when you're ready, let's make her start.

To be able to look at the implications of borrowing money, we first need to understand what borrowing is.

And if you did Lesson 2 in this unit, you'll have a good understanding of borrowing, because we covered that at the end of that lesson.

But if you didn't, then that's okay.

We'll cover borrowing now.

I want you to think about if you've borrowed anything recently, so it might be an item of clothing from friends or family, some cash, or maybe a pen in school, because you haven't got a pen to do your schoolwork.

And can you think of the last time you borrowed something you couldn't give back or that the lender didn't want to give back? And the examples I usually use here, a tissue.

So obviously if you blow your nose, no one's going to want that tissue book or a piece of paper, 'cause you're probably going to use it to write on it or do some origami on it, and it will have changed how it is after you have used it.

So they're not going to want it back in that used condition necessarily.

So with that first one, have you borrowed anything recently? Was anything ever expected in return in addition to returning what you borrowed? So for example, you borrow a pen of your teacher.

At the end of the lesson, they'd probably want it back so that they can loan it out to another student in the future.

But did they expect anything from it now? As a teacher, I would probably expect you to have done some work with that pen.

So you didn't just borrow the pen to not do anything with it.

You used it to write something down perhaps.

And so when we borrow in that sense, then they might want something extra on top of what they lent you because of the inconvenience of lending to you in the first place.

And then the idea of, can you think of the last time you borrowed something you couldn't give back? Why can't everything be borrowed? Well simply, some things aren't suitable.

Not all borrowing options are good options.

So you have to be really conscious of what you're lending out, what you're getting back for it, and what the expectation is from the lender in the first place.

So here's some key distinctions to make when looking at borrowing between the idea of gifting, borrowing and theft.

And so on the left here, we've got some presents and that would be classed as a gift.

So that's when something is given willingly without any kind of payment, you don't expect anything in return and you're certainly not asking them to pay for what you're giving.

So that's gifting Borrowing is to take and use it with the intention to return.

So with finance, you intend to pay it back.

Doesn't mean you can pay it back.

Circumstances might change.

And you've got to counter that into your borrowing habits and thinking about future issues, but that leads us on to theft.

And the example I'm going to use here is the idea that you might take something and you think, well, I'm just borrowing that and I'm going to give it back later.

So it's okay.

But actually if you are taking it without permission, then that's theft and not borrowing.

And so people can sometimes get these concepts a little bit mixed up, but just so you're aware, there's a real distinction between gifting and borrowing and theft.

And just to make sure we've got this clear understanding of borrowing, we'll go through that now.

So we can borrow as individuals just like businesses can borrow and the government can borrow.

Their borrowing requirements are likely to be bigger and for different things.

And a business might need to borrow to keep their business going through a tough time.

Many businesses had to close during lockdowns as a result of coronavirus.

And might've borrowed to keep a business going until lockdown ended.

Governments may need to borrow to balance their budget where the country's expenditures are greater than its income.

And so this idea of borrowing is bigger than just us as individuals.

It applies to larger groups too.

And borrowing is the idea that you are taking something to then pay it back later.

And the important thing to know about borrowing is that often when you pay it back, there is interest or extra expected of you to pay back for the privilege of borrowing it in the first place.

As I said previously, we talked about this in Lesson 2.

So you're always welcome to go back to Lesson 2 in this unit and have a look at the lesson, if you're still not sure on borrowing.

But we talked also about credit and credit is borrowed money.

And occasionally you might be given 0% credit for a short period of time.

Then it might move to a higher interest rate.

So that essentially means that you might be lent some money from a lender for no extra money expected of you when you pay it back.

But after a time, if you don't pay it back, say within a couple of months, it might then start charging you that privilege, the ability to borrow money.

So why might people borrow using things like credit? That is what we need to think about.

And to do that, I would like you to create a mind map of your ideas.

So why do you think people borrow? So on had a piece of paper put in the question why do people borrow and spend five, six minutes thinking about different ideas, jot them down.

And when you've done that we can continue.

And just before you do click Pause, I've got a challenge for you, and I want you to think about, not only what individuals might borrow for, but what might businesses borrow for or what might the government borrow for? So when you've done that task, do you press Play and we will have a look at your ideas.

So well done, welcome back.

And let's have a look at some ideas you might have put down.

Doesn't matter if you haven't got all of these or you've got some different ones, but just to ensure you you're on the right track, so let's have a look at what I've got.

Do keep these ideas safe because we are going to use them later on in the lesson.

So make sure you have noted them down, but these are the sorts of things that people talk about when they talk about borrowing.

So it might be for a holiday.

It might be a long-term investment in terms of borrowing such as a house.

It might be for transport like a bike or a car.

It could be for the latest technologies, such as a console.

Christmas and birthday presents, people sometimes borrow, because that's quite a big expense if you're buying for lots of people.

If you are short one month and you've run out of money, then some people might borrow for their food shopping.

You might borrow for larger goods that are necessary to keep your household going such as a broken appliance, like a washing machine.

You might borrow this really must-have, the latest fashion such as the latest trainers.

Or you might be future-proofing.

So you might be borrowing large amounts, perhaps for education.

So thinking about university fees, potentially.

And obviously say not all of these would apply to businesses and the government.

But the government has to borrow, just briefly, the government has to borrow to ensure that there isn't a deficit.

So that means that they don't have enough money to pay for all the things that they've said they're going to pay out for.

So they might borrow to cover extra costs within the United Kingdom.

And businesses might borrow for lots of different things, though sometimes they're the same as what individuals would borrow for.

So if you're a launderette, for example, and that's a business that does people's washing.

Then if your machine breaks, you might borrow to replace that machine or have it repaired, which people do for their own homes if their washing machine breaks So well done if you got some of those ideas and don't worry too much if you didn't get all of them, but there's a good range of reasons why people choose to borrow.

That doesn't mean that they are good reasons to buy, but we can have a think about that further later on.

And there are lots of different types of borrowing for people to use for those different things.

So there are very few times you can borrow without having to pay for the service.

If someone offers a friend perhaps or a parent or guardian offers to lend you some money, then that's very nice of them, but they don't have to do that.

And most people have to go to a company to borrow money.

It's important to borrow responsibly and think about the extra cost of borrowing.

Do you really need it? Is it necessary? Is the extra cost worth it? And I just want us to think about these five different types of borrowing.

All of them involve interest which is the extra amount that you pay on top of what you borrow.

But there are five key types of short-term loans, long-term loans, overdrafts, credit cards and credit unions.

I'd like you to pause the video now and complete this task of writing down what you think the following forms of borrowing are.

So just on your paper or wherever you've got to write on, just note down those five types of borrowing and what you think they involve.

And when you've done that, press Play and we will have a look.

Well done, hopefully you've had a good go at that.

Perhaps you didn't get all of them written down.

That's absolutely fine, but hopefully you've had a think and perhaps know some of them.

Short-term loans are an amount lent for a short period of time.

The clue is in the title there.

So usually under a year and they tend to be at a high interest rate as a result.

Long-term loans are an amount lent for a long period of time usually over a year in this instance.

And they tend to be at a lower interest rate than a short-term loan because of their length.

Overdrafts is what you spend above what's available in your debit account, so in your bank account, if you overspend, it's an overdraft.

A credit card is a card which has a limited amount which can be spent and paid back.

And they have varying interest rates on that.

Sometimes they start off with low interest rates and over time they might go up.

They might have an average interest rate from the very beginning for however long you hold that card.

And then there's credit unions.

And these are nonprofit organisations which offer low interest borrowing.

And usually they're associated with professions, for example.

So with those in mind, should we borrow? What are the advantages and disadvantages of these? And I've given you some ideas.

These are not exhaustive.

So there might be some more that you have an idea of.

But these are some advantages and disadvantages.

I'd like you to match the statements, the type of borrowing that they might apply to.

So pause the video, you could create five columns with those different types of borrowing and then just jot down the different advantages and disadvantages.

Spend about five, six minutes on that and when you've completed the task, press Play and we can have a think about what applies where.

Well done for giving that activity a go.

And the key thing here is to remember that not all the advantages and disadvantages of these types of borrowing are here, but there's a range of them.

And I'm just going to go through a few examples that you need to be aware of.

And before I do that, just to say that all types of borrowing have advantages and disadvantages to them and it is important to look at those before any borrowing happens to make sure that it's right for you or right for the situation that you might be in.

So we'll start with short-term loans.

There's quite a few disadvantages here, mostly because they are high in interest rates.

And so it means you could be borrowing for longer, so that's D, and you do end up paying back quite a bit, and that's A.

You could also build up a credit score though, which might help you borrow for less in the future.

So that might be an advantage potentially, and it can help.

They can help in emergency situations.

So another advantage there.

So you have to weigh up whether it's a good thing or a bad thing.

Long-term loans or disadvantage is that you're going to take a long time to pay that back.

It might not be a high-interest rate, but it's long-term, and therefore it's over a long period of time.

But it can help you, so F here, and help you pay for a high-cost item over a long period of time.

Overdrafts are slightly different because some accounts such as a student account, which is offered to people when they go to university, for example, can be free for a certain period of time.

And so it could just support you if you needed it in an emergency situation, B for example.

But if you build up a big overdraft and they start charging you on that, then obviously that is going to cost you a lot of money and take you a lot of time to pay back.

Credit cards, well, they're all different, depending on your credit score so they can help you get a credit score.

And a credit score basically is how companies decide whether they can afford to lend you money, whether they should afford to lend you money.

And if they do lend you money, at what rate, what interest rate they might charge you.

So credit cards can help you build up a credit score and they can also help in terms of emergency situations.

But interest rates do tend to be quite high on credit cards, so a disadvantage here, which would be A, interest rates are high, meaning you pay back quite a lot.

And credit unions are nonprofit organisations.

So they're really trying to help people out in the sense that they might help you build up your credit score, but there is still a debt, there is still something to pay back which you have to do at a cost, because it's there really to help you understand credit and how that works.

Potentially enable you to borrow in an emergency situation, for example.

So there's lots of balancing to be done when we consider whether we should borrow or not.

And another thing to consider when we borrow is this.

How do we pay for the things we want to borrow for? And we came up with a range of ideas earlier about reasons why people borrow.

And I said to you, make sure you keep those notes because we will use them, and we're going to use them now.

So put these ideas into different categories in the columns and there is a sheet for you to use over on the worksheet if you want to or you can draw this out yourself.

Ensure you justify, just giving a reason, key citizenship skill here.

Why you have organised them into these columns.

So spend a few minutes just popping those ideas into the different columns.

Should you never borrow for those? Should you only use short-term credit options such as a payday loan or a credit card or long-term credit option such as a loan, and just quickly, you don't know what a payday loan is.

They tend to be loans that you can borrow before you're paid to get you to the end of the month, but they're at really high interest rates, particularly expensive if you don't then pay it back on payday.

So pause the video, jot those ideas across into those columns and when you're ready, press Play and we will have a look.

Welcome back, first thing to say here is that you do not have right or wrong answers for this one because it's individual and dependent on someone's circumstances.

So when you considered why you put your options where you did, that's what I was really looking for.

So in that last task, I asked you to justify why you put those reasons for borrowing into the different columns.

I said remember to justify it as a key citizenship skill, because there's three things you need to bear in mind and that is affordability, need versus want, and urgency.

So if you can afford it, then you can borrow for it.

If you need it, then you probably should borrow.

Whereas if you want it, perhaps it's best to save up and get it in the future, if at all.

And urgency, do you need it now? Can you wait a little while? And so you have to really consider the urgency, the need versus want and the affordability of the things you're borrowing for.

And we've considered how to borrow carefully in that sense and I just want to apply this to the government and businesses, because they have to follow this to ensure they run well.

And this whole unit is all about how we manage money well.

Businesses have to consider their shareholders and the government has to consider its citizens.

So it's bigger than just you as an individual deciding for example whether you should borrow to go on holiday or not.

So when businesses and government have to look at borrowing, they also need to consider is it affordable for the business or for the country? Is it something they need or is it something they just want? And is it urgent? Does it need to be done now? And historically different governments have tried to ensure the country borrows when it needs to borrow, but pays back debt when it is necessary.

And you can see on this graph here the idea of borrowing.

And you can see that over time, there are periods of time where we borrow a lot and there are periods of time where we don't borrow very much.

And you can see at the end of that graph there, the borrowing has gone very high again.

And that will be in relation to the pandemic in 2020, because a lot of spending had to be done in terms of ensuring that the country could combat that pandemic in the best way the government felt it could.

And everyone, companies, government, individuals need to borrow smartly.

So let's have a look at this poster.

And it's got Barry's Loans.

So it's my personal loan company.

I don't actually have a loan company, but just an example poster.

And it says, do you want 300 pounds today? Is it as simple as being given 300 pounds? Hopefully you sat there thinking, well, no, it's not that simple.

And you'd be absolutely right.

And the key thing, key takeaway in terms of borrowing smartly that I'm going to talk about is the fact that if it looks too good to be true, then it probably is.

Couple of different types of loans that you can get, that you really need to be aware of in terms of borrowing smartly are loan sharks and payday loans.

So loan sharks are a group that might try and lend you money in an illegal way, not using the official legislation out there.

So all lenders out there should be registered with the Financial Conduct Authority and they monitor the way financial companies conduct their business.

So loan sharks not registered and they are illegally lending money.

Usually at high interest rates, far higher than what is legally allowed.

And loan sharks might take illegal actions to claim their money.

So they might use force for example, to go in and claim their money.

Payday loans, we briefly mentioned these earlier, in an earlier task.

These are designed to be short-term loans and they are referred to as payday loans as they are designed to help someone get through until payday and they should then pay it off.

And they have a high interest rate and are very easy to access.

And so the chances that you'll be approved with this high interest rate, whether you feel you're able to pay it back or not.

And so they don't always necessarily check clearly the affordability of that to you.

So you have to be really careful, borrowing smartly.

I just want us to quickly have a look at three different scenarios and work out the consequences of borrowing for these three young people.

Do you think they can afford the borrowing they've taken? So these three people have taken that borrowing and I want you to consider the affordability.

So first of all, we have Lucy.

And Lucy earns 680 pounds a month.

40 pounds of this is normally leftover at the end of the month.

And she really wants new trainers a week before payday and just simply won't wait.

She borrows 80 pounds to buy them using a payday loan.

And she has to pay back 100 pounds on payday.

Just jot down, do you think it was affordable or not? Person number two, Sanjiv.

Sanjiv would like to buy a flat costing 150,000 pounds.

He can afford the monthly mortgage cost of 450 pound a month.

And has saved a 10% deposit of 15,000 pounds over the last five years.

He borrows the 135,000 pounds he needs and is expecting to pay back 212,000 pounds over 25 years to be able to purchase that flat.

So jot down whether you think Sanjiv will afford that or not.

So lastly, Alex.

Alex has recently lost her job.

She has two children and her boiler has broken, meaning it is cold and they have no hot water.

She can't go to the bank for a loan, but she sees an advert for a loan shark.

She borrows 350 pounds from the loan shark.

Jot down is that affordable? Let's look at the consequences of borrowing then for these young people and their affordability.

Lucy didn't budget.

And she should have saved, because it's not something that she needed straight away and it's not urgent.

So the only question she had was that idea of affordability.

And so here she is actually going to be short 60 pounds next month.

So she's going to have to catch up over a long period of time because she doesn't have the money to be able to borrow that and to pay it back quickly.

Remember payday loans have a high interest rate, so that could cause her a lot of trouble in the future, something she didn't need and wasn't urgent.

Sanjiv managed to save, showed budgeting, and was looking at making a long-term investment and to be able to buy something at that cost, not many people have that money up front.

He's obviously considered the borrowing implications and worked out that you can afford those payments.

And so the consequences for Sanjiv really is that he's going to be making an investment with his earnings, but he does need to consider perhaps what might happen if he wasn't to have that income and to be able to pay that in the future.

But really that seems to be a smart piece of borrowing.

Alex, at the end there is a bit of a trick one that I've put in there to see if you spot it, because Alex borrowed from the loan shark.

And so there's not really a question of affordability here, but the idea that you need to borrow smartly and think about where you're borrowing from and how you would be able to afford it in the future and loan sharks don't always play fair, so they can, remember, use illegal means to get that money back and potentially say you owe more and not really allow Alex to get out of that situation.

So it was all about borrowing smartly and thinking about why are you borrowing and what reason you're borrowing for.

And that works as an individual or for businesses and for the country as a whole looking at the government and how they borrow and to ensure that country runs well.

so Sanjiv could afford borrowing, was the kind of conclusion that we came to.

And how might he decide between these lending options? And because part of borrowing smartly is to be able to choose the aspirant option for you or the situation you're in or the people you're responsible for.

So we've got Mortgage One.

Use their profits to invest in environmentally friendly energy where they have an interest rate of 4.

2%.

And there's no extra benefits to that.

Mortgage Two, their profits go to investing in fossil fuels.

They have an interest rate of 3.

8%.

Their benefits include a 500 pound voucher towards carpets when you move.

Mortgage Three, profits.

There's no evidence of investing in negative areas.

Doesn't really disclose what they invest into.

The interest rate is 3.

9%.

And the benefit is a free hamper when you move in.

So how might you decide between those lending options? Well, some people will go simply on the amount that you're going to have to pay back, so that would be the interest rate.

And in that sense, Mortgage Two might be the best option.

But we need to be financially responsible.

And part of our financial responsibility is looking at where our money goes and what it's being used for.

So for some people, they might look at the ethical investments.

And so Mortgage One uses their profits partly to invest in environmentally friendly energy.

And so someone might think, well, I'm going to be financially responsible.

Think about the future and think about where my money's going.

And so they might go for Mortgage One.

And I think to bear in mind here is these idea of benefits.

They use these to try and entice you into a deal.

They might not really be worth what they are trying to put across.

So seems very nice, 500 pound voucher toward carpets, but that's not a lot when you're looking at a loan over 25 years where you're going to be paid back a lot of money.

So lots of different considerations to be thinking about when you're borrowing smartly.

So you can see the need to borrow smartly across the globe and different countries have borrowed historically.

Some have borrowed smartly and some have been able to afford repayments.

Whereas other countries have high interest rates and struggle to afford their payments.

So this just shows you, thinking about beyond us as individuals, that borrowing is an issue for the whole world and developing countries are more likely to borrow, because they need to develop their facilities for their citizens and they want to do that to become more developed countries, but they have borrowed a high interest rate in the past, often from developed countries.

The thought point here is that if you were in charge of a country, would you borrow to develop your country to make it better for its citizens? This is why developing countries have borrowed, because they want to make it better usually for its citizens.

But that does mean that the citizens themselves end up paying more.

And so it's a real tricky place to get out of where you are trying to make sure you're more developed or have better things, if you're thinking about the individual, to therefore further yourself in the future.

And so the considerations for an individual borrow are the same sorts of considerations for larger organisations or even for countries across the globe.

There's one final thought that I want to leave you with.

And this is a question that gets asked a lot when we talk about money and borrowing.

Why can't you just print more money? When a whole country tries to get richer by printing more money, it rarely works.

Because everything is relevant to value.

So it's about the value of goods and services, not the amount of money available.

People find that if there's more money available, they need more and more money to pay for things because of inflation and prices get higher.

So it's not as simple as just printing more money.

Well done for completing today's lesson.

I'm just going to have a run through of what we've covered.

We're looking at what are the implications of borrowing money? And we started the lesson by thinking about what is borrowing and the difference between borrowing, gifting, and theft.

We've had a good look at different types of borrowing that might be long-term borrowing or short-term borrowing.

We thought about the advantages and disadvantages of those different types.

And then we spent some time looking at what it means to borrow smartly, particularly remembering that if it looks too good to be true, then it probably is.

We've done this looking at the government as well as individuals, just thinking about the fact that all types of people and organisations have to borrow money and for certain things and the way in which they do it and where they do it.

So well done and hopefully you found the activities useful in checking your understanding and you now have a good understanding of the implications of borrowing money.

If you want to, you can share your work with Oak National.

So you can do that by asking your parent or carer and putting that on Instagram, Facebook, or Twitter, tagging @OakNational and #LearnWithOak.

And there's just one thing I need you to do before you leave.

And that is to complete today's exit quiz.

So well done again, and I look forward to teaching you another citizenship lesson in the near future.